Category: ERP

I came across an intriguing poll today. A small company called Software Advice , who provide advice on evaluation of ERP and MRP systems, has been running an on-line poll about which software company Oracle will acquire next. The results of their poll so far (which is still open) is here.

What interested me most was not the actual poll results as such, but the way in which this poll has managed to attract a very high response rate (well over 1,000 responses). It could be viewed as an example of crowdsourcing, which is an idea explored by James Surowiecki in his book “The Wisdom of Crowds”. This is a fascinating idea, reasoning that in some cases a large sample of answers will actually generate a more accurate response than a supposed expert. Of course this method does not always work (Gary Kasparov beat thousands of players voting in a poll in a chess match against “the world” in 1999) but it seems like an idea that is worth further testing.

This is the first time I have seen this notion being applied to the world of enterprise software. There are plenty of other questions that could be tackled by such an approach, and I hope that this company or others extend this poll to other areas.

Business Objects announced a witches brew tie-up with Big Blue, bundling DB2 and its data warehouse capabilities with Business Objects together as a business intelligence “offering”. Given that Business Objects already works happily enough with DB2, it is rather unclear as to whether this is a any more a ghostly smoke and mirrors marketing tie-up rather than anything deeper, but it certainly makes some sense for both companies. It does, however, hint at Business Objects moving away from pure database platform independence, which takes on a new significance given the takeover (sorry: “merger” – much background cackling) of Business Objects by SAP. Is this really a subtle move to try and irritate Oracle, the other main DBMS vendor, give the highly competitive situation between SAP and Oracle, who are locked in a nightmare struggle for world domination? In this case, is SAP just manipulating Business Objects like a possessed puppet, pulling the strings behind the scenes, or was this just a hangover from the pre-takeover days, with the Business Objects marketing machine rolling on like a zombie that stumbles on yet does not realise it already has no independent life, clinging to some deep-held memory of those days in its old life. SAP has a more tense relationship with IBM itself these days. IBM sells cauldrons of consulting work around SAP implementations, but found a knife in its back when SAP started promoting the Netweaver middleware in direct competition with IBM’s Web Sphere.

Announcements from Business Objects from now on all need to be looked at through the distorting mirror of the relationship with its new parent, as there may be meaning lurking that would not have existed a month ago. Everything needs to be parsed for implications about the titanic Oracle v SAP struggle, as Business Objects should strive as far as possible to appear utterly neutral to applications and databases in order to not spook its customers. Arch rivals Cognos, Microstrategy and SAS will take advantage of any hint that the giant behind Business Objects is just pulling its strings.

You may recall my blog on SAP’s farcical claims about its software’s impact on company profitability. It looks like someone with more time on their hands than me actually checked up on the figures and found these lacking, in addition to the lack of logic in the original claim. Nucleus Research, who are noted for their rigor with numbers, found that in fact that SAP customers (identified by being listed on SAP’s web site) were 20% less profitable than their peers, rather than 32% more profitable. Of course this is not quite the same thing, but it is amusing: it suggests that only SAP’s identified reference customers are relatively unprofitable. Perhaps the ones who keep quiet are doing OK? As I noted earlier, the SAP claim was deliberately skewed to exclude all financial institutions (which share the twin characteristics of being highly profitable and rarely using SAP) while anyhow the notion that the choice of your ERP systems provider is a cause of either good or bad profits is both logically flawed and also deeply amusing to those of us who have watched companies spend billions implementing SAP to little obvious effect in terms of hard business benefits.

Good on Nucleus for poking further holes in this especially egregious piece of over-marketing. Bruce Brien, CEO of Stratascope, the company that did the market research for SAP, reacted by sayng:â€œTheyâ€™re making an implication that my numbers canâ€™t prove, but itâ€™s a marketing message. Companies do that all the time,â€ he says. Oh well, that’s all right then.

Now that there are effectively two enterprise ERP vendors bestriding the world, it may seem that they can just sit back and count the spoils. Both have huge net profit margins derived from their market leadership, so it may seem churlish to contemplate their eventual demise, yet a number of factors are combining that should cause a few flutters in Redwood City and Walldorf. Consider for a moment what a transaction system application such as ERP actually does, or used to do:

business rules/workflow

master data store

transaction data store

transaction processing

user interface

(and perhaps some business content e.g. pre-built reports)

This edifice is under attack, like a house being undermined by termites. Transaction processing itself has long been mostly taken care of elsewhere, by old-fashioned TP monitors like IBM CICS or by new-fashioned TP monitors like BEA’s Weblogic or IBM Websphere. These days there are alternate workflow engines popping up, like Biztalk from Microsoft, or even a slew of open source ones. Moreover, more than half of the ERP functionality purchased is unused. The storage of data itself is of course done in the DBMS these days (though SAP tries hard to blur this line with its clustered table concept). As the idea of separate master data hubs catches on e.g. customer data hubs like Siperian’s, or product data hubs, or more general ones, and the serving up of such data is possible through EAI technology, then this element too is starting to slip away from the ERP vendors. The user interface for update screens should hardly be that complicated (though you’d never guess it if you have ever had the joy of using SAP as an end user), and these days can be generated from applications e.g. from a workflow engine or a master data application. This does not leave a great deal.

If, and it is a big if, SOA architecture takes off, then you will also be able to plug in your favorite cost allocation module (say) from a best of breed vendor, rather than relying on the probably mediocre one of your ERP supplier. Combine this with the emergence of “on demand” hosted ERP services from emerging companies like Ataio and Intacct as alternatives, and the vast ERP behemoth looks a lot less secure up close than it may do from a distance. If the master data hubs and business workflow engines continue to grow in acceptance and chip away further at key control points of ERP vendors, then at some point might it be reasonable to ask: exactly what is it that I am paying all those dollars to ERP vendors for?

This line of reasoning, even if it is very early days, explains why SAP and Oracle have been so anxious to extend their product offerings into the middleware space, with Netweaver and Fusion respectively. This is also what SAP has been trying to falteringly launch an MDM application (the rumor is that after the botched initial SAP MDM, the buy-in of A2i isn’t going that well either; maybe a third attempt is in the works?) and Oracle has been keen to promote its customer hub.

Of course it is too soon to be writing the obituaries of ERP yet, but a combination of evolving technologies is starting to illuminate a path for how you would eventually migrate away from dependence on the giant ERP vendors, rather than endlessly trying to consolidate on fewer vendors, and fewer instances of each. Now that would be radical thinking.

A research piece shows some facts that will not stun anyone who has had the joy of living through an ERP implementation. According to a new study:

one third of users leave large portions of ERP software entirely unused

just 5% of customers are using ERP software to its full extent

only 12% install ERP “out of the box”

over half did not measure return on investment of their IT applications.

The only thing surprising about these figures is how implausibly good they are. According to Aberdeen group, only 5% of companies regularly carry out post-implementation reviews, so “less than half” seems wildly optimistic there. Moreover, just who are these 12% of companies who install ERP “out of the box” with no modification? Not too many in the real world, I suspect. Similarly, very few companies implement every module of an ERP suite, so the figures on breadth of usage seem also unremarkable.

Many ERP implementations were banged in to try and avert the Y2k catastrophe that never happened, but there were plenty before that, and plenty since, including numerous ERP consolidation projects (though there are fewer of these that ever look like finishing). I guess the scary thing here is the expectation gap between the people who actually paid the bill for these mega-projects, and the reality on the ground. However, as I have written about elsewhere, these projects are just “too big to fail” or at least to be seen to fail, as too many careers are wrapped up in them, so this state of denial seems likely to continue until a new generation of CIOs comes along.

I laughed out loud when I saw an article today with the headline “Oracle Solution- Easier to Implement than SAP”, but that isn’t setting the bar real high, is it? SAP may be lots of things: successful, profitable, large, but no one ever accused their software of being simple and easy to implement. What next? “Accountants less creative than Arthur Anderson at Enron” or “now, a car more stylish than a Lada”?

This particular piece of marketing spin is supposedly around an “independent” study done on SAP BW and Oracle Warehouse Builder implementations at various sampled customers. I have to say I suspect that the study might just be paid for by Oracle, though that is not stated, given that this same market research firm also brought you articles such as “Oracle is 46% more productive than DB2”. We all await with bated breath further independent research pieces showing that “Oracle solves world hunger” and “Why the world loves Larry”.

However, in this case I don’t doubt the veracity of the material (much). SAP has become a byword for complexity, with up to 45,000 tables per implementation. Business warehouse is not quite on this scale, but still involves lots of juicy consulting hours and most likely some programming in ASP’s own proprietary coding language ABAP, which I am proud to see that I once took a course in (think: a cross between IBM assembler and COBOL). I haven’t got direct coding experience with Oracle’s tools, but I have to assume that they can’t get murkier than this.

High tech marketing has come up with some entertaining headlines and slogans over the years, but “easier than SAP” is definitely my favorite in 2006 so far.

In an article looking forward to trends in 2006, an Oracle executive raises an interesting point. The applications market for large enterprises has now essentially reduced to a field of two giants, SAP and Oracle, with a long gap now in size between them and vendors in particular niches such as supply chain or customer relationship management. Yet CIOs are demanding, as he puts it, “hot pluggable” applications, which is another way of saying easy inter-operability between applications. For example a company might like to be able to call up a specialist pricing application from a small vendor within their SAP or Oracle ERP application.

This creates a tricky dynamic for Oracle and SAP, who ideally would like to expand their own footprint within customers at the expense of each other (and other vendors). If SOA actually works, then they will be enabling customers to easily switch out the bits of their applications that customers dislike in favor of others, which is not in their interest. Of course Oracle also sells a middleware stack, and now SAP has entered the fray with Netweaver. By doing so they hope to switch the ground: if someone is going to call up a non-SAP application from within SAP, then SAP would rather that they did it using Netweaver protocols than a rival stack, such as IBM Websphere. Indeed they would really prefer that people didn’t do this at all, but instead just use more and more SAP modules. The same goes for Oracle. Hence these two application vendors need to be seen to be playing the game with regards to inter-operability, yet it is actually more in their own interest if this capability does not work properly. IBM, who does not sell applications, is in a much cleaner position here, since they can only benefit by having genuine application inter-operability via Websphere, whoever the application vendors are. IBM does not sell applications, so only has a vested interest in selling more middleware in this context (and of course the consulting to implement it).

Customers need to be very aware of the desire by the application vendors to lock them into their offerings through their middleware, and should question how genuine the commitment of application vendors to true inter-operability really is. Just as turkeys don’t vote for Christmas, why would a dominant application vendor really want their application to be split into bite-sized pieces that could be each attacked by niche application vendors that would not have the reach to challenge their monolithic applications without this capability?

Of course Oracle and SAP cannot actually say this out loud. IBM (and other independent vendors like Tibco), however, should, and potentially this ought to give them an edge in the coming middleware wars.

An article in Computer Weekly today by Martin Fahy contains some excellent insights into why “single instance ERP” is mostly a fantasy. An academic, he has conducted a survey of CFOs and his research has unearthed found some interesting findings. Firstly:

“CFOs and senior finance executives prefer technology architectures that are robust across a wider ranger of organizational circumstances”

Spot on! One of the limitations of ERP systems is that they impose a rigid business model – indeed this was one of the selling points: “sweep away all that inefficient duplication and standardize around a single set of processes”. The trouble with this is that businesses do have unique requirements in particular territories or markets, and are at different stages of development. What may make sense in a mature market such as Germany make not do so in a fast-growing developing market like China. The more widely the scope of a single ERP implementation, the longer it takes to implement and the more functionality that needs to be loaded onto the project. Changing this becomes ever more difficult given its scale, making the business less reactive to changing circumstances since its business processes are essentially frozen.

“CFOs in particular are skeptical about making further investments in second wave ERP until payoffs from the first wave of implementations is realized”

This is a woefully under-discussed topic. Lots of people made money in the yah-fuelled ERP boom of the 1990s: certainly vendors like SAP and Oracle, and definitely the consulting firms that implemented these systems. Yet how often have these systems actually delivered the returns that they promised? Since a pitiful 5% of firms actually carry out regular post implementation reviews (according to Aberdeen) few people really know, but my own experience at two multi-nationals would suggest this is not a topic that executives want to highlight. At one company I am familiar with, an ERP consolidation project is underway that is estimated to cost a billion dollars, and will take eight years. Given the track record of projects that size, it is hard to be optimistic that something won’t change in that timeframe that will affect the project.

“users tend to find ERP functionality cumbersome, complicated and not in keeping with their established work patterns”

In my view, CIOs spend too much time worrying about “simplifying” core infrastructure, where benefits are at best difficult to pin down, and not enough on truly value-added initiatives that business people can relate to, such as ones that enable better customer understanding.

The study concludes that “For the foreseeable future single-instance ERP will be a popular rhetoric, but a scarce reality”. Given the real and very high costs of getting there (Nestle, the poster child of single instance ERP reportedly spent USD 3 billion dollars on this) and the ever-elusive payback, one wonders how any of these initiatives ever get signed off at all.

SAP’s Netweaver initiative is an astute move to try and define and so to control a standard for applications in large enterprises. It will certainly present advantages to existing committed SAP customers, who will be able to interact more easily with some non SAP applications. However there are several drawbacks. Firstly, NetWeaver’s integration is skin-deep. If you are on an SAP screen you can potentially branch out to a non-SAP routine e.g. a specialist payroll calculation routine. However anything that requires the integration of data between SAP and a non-SAP system is no better off than they are today i.e. customers are still into coding. Since the higher value levels of integration will usually involve not just portal-like “put in on the same screen” integration but actually dealing with business meaning of data, this will limit the use in reality. For example Netweaver would allow you to drop out of an SAP process into a supplier system, but does not help you deal with the issue that your set of product codes, or your general ledger structure, are different from that of your suppliers. For meaningful integration you need to resolve the business meaning or semantics.

What Netweaver certainly does is to declare war on several industry players who were previously either neutral to SAP or indeed active partners. IBM is the most obvious example. IBM has a massive services arm that does huge business implementing SAP, and IBM has decided to stay out of the applications business, so relations between the firms were good. Netweaver directly attacks IBM’s core websphere middleware, and so now IBM’s software group is in direct competition with SAP. The same would go for the EAI and ETL vendors (e.g. Tibco) and Microsoft, who have their own middleware stack. Oracle competes here too, but of course Oracle was already the most direct competitor to SAP. SAP may not care about the EAI world, but IBM especially is a big target to take on. The reason that SAP is prepared to take this risk is that the reward is so great: Microsoft showed the power that can be exerted by controlling the critical standard, in their case Windows.

Most large corporations have multiple middleware stacks within their organization (SAP, but also IBM Websphere, Microsoft and probably Oracle as well), so the key issue for them is how to deal in a neutral way across these, rather than how to rip all but one of these out. This is where the Netweaver strategy may ultimately fail, since the sheer cost of ripping out an existing well-established software infrastructure is gigantic, and that assumes that corporations donÃƒÂ‚â€™t care about the lock-in that would give SAP. Some won’t care about this, but many will. However the practical problem is the sheer scale of core infrastructure that would have to ripped out, and yet without data and business semantic integration, the benefits of doing such a thing would be very limited. Oracle and SAP are both giants locked in a battle to gain a larger and larger footprint in the enterprise, yet both are too well-entrenched to ultimately destroy the other. SAP has no database, for example, an Achilles heel for it, and SAP grieves every time they win an application account from Oracle and then see the customer deploy SAP on the Oracle platform. Oracle and SAP are always likely to optimize their applications for their own proprietary middleware, since their agenda is to expand their footprint inside large corporations, yet by doing so they rule themselves out of being an idealapplicationsn-neutral layer that can genuinely help their customers.

For most enterprises, Netweaver looks superficially attractive but does not solve the core integration problem, that of resolving the differences in business meaning embedded in their many, many core transaction systems. Netweaver’s widespread deployment is certain, but its skin-deep level of integration will deliver only limited benefits to customers, yet at considerable cost. Perhaps customers should check back on the investment cases they made a few years ago before they went down the ERP route – did the benefits promised then actually materialize? The costs certainly did (billions of dollars each for global corporations), but I haven’t seen too many of their IT departments shrinking away to nothing because all their integration problems were solved.

You may have seen SAP’s latest advertising campaign, which breathlessly claims that “A recent study of companies listed on NASDAQ and NYSE found that companies that run SAP are 32% more profitable than those that don’t*. Based on a 2005 Stratascope Inc. Analysis”. There are at least three interesting features in this advert. The first is that little asterisk at the end. If you read the (small font) footnote you will see that this excludes all financial services companies. A little odd until you realize that financial services companies these days have two particular characteristics: they make a lot of money, and they rarely use SAP. Could their inclusion have, perhaps changed the results somewhat? Of course one could ask Stratascope, the market research firm headed by a chairman and President Juergen Kuebler, a nine-year SAP veteran, and I’m sure they will give an unbiased and objective opinion. I am going to take a wild guess and say that including financial services companies would not make the figure look better.

However by far the most interesting aspect of this advert is its sheer chutzpah, with its implication that if you use SAP then you will be more profitable: 32% more in fact. Lest the subtleties of statistics have escaped the denizens of Walldorf, I would like to remind them that because two datasets have a positive correlation, it does not mean that this correlation is caused by anything. For example, I observe that my increasing age is well correlated with the steady rise in global temperatures. As far as I know, there is no direct link. Similarly, one could observe: “the stork population has gone up, as has the human population. Hence storks must create human babies”. For example, I can tell you that four of the UK’s five most admired companies last year were Kalido customers (true) yet to say that one implies the other is absurd.

It is particularly implausible to make such bold claims in the case of IT systems of any kind, which may well have distinct and real benefits in individual cases and projects but whose influence on overall productivity has generally eluded economists entirely. The studies there have been are controversial e.g. the 2002 McKinsey study that showed that, other than a few sectors (retail, securities, telco, wholesale, semiconductors IT) there had been no productivity growth whatever between 1995 and 2000 in the US despite heavy IT investment. This study was looking at all IT investment, of which ERP is only a small fraction.

So overall, SAP’s claim excludes a key industry sector to selectively improve its results and in any case makes a claim that is logically spurious and has no supporting evidence. Other than that, excellent. All par for the course in software industry marketing.

Posts navigation

Andy Hayler

Andy Hayler is a passionate and outspoken commentator on the enterprise software market. A 20-year veteran of data modelling, warehousing and integration projects, he was named a Red Herring Top 10 Innovator in 2002 for founding Kalido – an innovative information management company that provides customers with the ability to dynamically view the impact of business changes. The views expressed on this blog are Andy’s own, and do not necessarily reflect the views of The Information Difference.